In November 2020, there was an Executive Order entitled “Lowering Prices for Patients by Eliminating Kickbacks to Middlemen.” And we had HHS (US Department of Health and Human Services) Secretary Alex Azar and the HHS Office of Inspector General finalizing a regulation to eliminate the current system of drug rebates in Med D (Medicare Part D). And what they were trying to do is create incentives to reduce out-of-pocket spending on prescription drugs by delivering discounts directly at the pharmacy counter to patients.
Those discounts delivered at the pharmacy counter? Not insignificant. In 2019, Part D rebates totaled $39.8 billion. The new rule stipulates that federal spending can’t be increased as a result of this action. But in summary, it’s pretty much a reboot of the same ruling from earlier last year.
Here’s a couple of points: The rule is only for Medicare (Med D)—Medicaid and commercial aren’t included—but … there’s a but, and we get into that in this episode. Also, the start date for this ruling is 1/1/22 if it continues to stand in the new administration, which is a big if.
What was at stake the first time this rule was drawn up by HHS and is likely still at stake is the implementation flowchart. Who exactly is involved in adjudicating these “potential discounts for patients at the pharmacy counter”? Since any middleman who gets themselves involved in anything takes a buck, there is a massive land grab, if you think about it, that if any middleman can grab a buck, this could be a lot of money.
So, the first time this HHS proposal was presented in 2019, I talked to AJ Loiacono, who’s the CEO over at Capital Rx. I have to say I was a little over-cocky relative to how well I really understood the hidden machinations behind pharmacy Rxs being adjudicated, and AJ does an amazing job explaining it. This is incredibly relevant as we contemplate potentially who gets a piece of the action moving forward. But regardless of, in some respects, what happens with this HHS rule, I found it interesting and valuable to understand what exactly happens in the dark messy middle, maybe underbelly, of a pharmacy adjudication.
You can learn more at cap-rx.com.
Anthony J. “AJ” Loiacono is a serial entrepreneur with over 20 years of experience in pharmacy benefits and software development. As the CEO of Capital Rx, a pharmacy benefit manager (PBM) that is bringing transparency and fair pricing into an otherwise opaque industry, his mission is to change the way prescriptions are priced and administered to create enduring social change. AJ spent his career studying the pharmaceutical supply chain and producing engineering solutions that have continually redefined the pharmacy benefit industry. At its core, Capital Rx is a technology-first company that has received multiple awards for the innovations that have propelled the company to record growth (Accenture Health Technology Champion, AMCP Gold Ribbon, EHIR Innovation Award, NYC Digital 100, etc).
Prior to Capital Rx, AJ was a co-founder of Truveris, where he served for eight years as CEO, CIO, and board member, leading the company to rapid expansion (Deloitte Fast 500 and Crain’s Fast 50). Before Truveris, AJ co-founded SMS Partners, a joint venture with Realogy (RLGY), and in 2010 exited the partnership with a buyout. In his first venture, AJ started Victrix, a pharmaceutical supply chain consultancy, and successfully sold the company to Chrysalis Solutions in 2007.
03:03 HHS’s plan to remove safe harbor from the rebates that Pharma pays to PBMs to buy their way onto formularies.
03:13 Creating more transparency by eliminating the anti-kickback.
03:58 What the anti-rebates process flowchart looks like.
04:20 Changing the term from “rebate” to “charge-back.”
04:25 Charge-back at the point of sale rather than post-adjudication.
04:37 How putting the pharmacy in the middle of the transaction changes everything.
05:36 “From a cash flow perspective, this matters.”—Stacey
07:18 “Who is in charge of this payment workflow?”
09:25 “Why the switch?”
10:56 The potential players in the role of paying pharmacies: PBMs, wholesalers, the switches (McKesson), banks/fintech, government contractors.
12:04 The likelihood that this will spill over into commercial medicine.
14:11 Why PBMs want to maintain the status quo, and how that works.
15:44 “Where there’s variability, there’s variable profitability.”
17:28 How do you check that the patient is getting the charge-back amount they deserve?
18:28 Is it still possible to pay to be on a PBM’s formulary?
19:16 Can you ever get away from the pay-to-play formulary?
22:31 “If you think about it, who’s writing the checks at the end of the day?”
22:59 What questions should employers be asking right now?
25:20 The problem with implementing HHS’s primary goal.
30:51 “Really what we should be focusing on is, ‘What are we solving for?’”
32:26 Capital Rx and what they do.